Australian Dollar Carry Trade ‘In Vogue,’ RBA’s Debelle Says

Dec. 10 (Bloomberg) -- The Australian dollar carry trade, in which investors borrow Japanese yen, Swiss francs and U.S. dollars to invest in higher yielding assets, is helping stoke the nation’s currency, central bank official Guy Debelle said.

“The Australian dollar carry trade now again appears to be back in vogue,” the Reserve Bank assistant governor said in Sydney today. “The Australian interest-rate differential remains relatively high compared to most other major currency pairs.”

Australia is the only central bank in the world to raise its benchmark interest rate three times this year as the Bank of Japan, U.S. Federal Reserve and European Central Bank kept their rates at or close to record lows. Carry trade returns between the Australian dollar and Japanese yen have returned almost 30 percent this year, Debelle said.

The Australian dollar, the second-best performer behind the Brazilian real among the 16 most-traded currencies in the world, has jumped more than 32 percent this year. It traded at 91.60 U.S. cents at 12:08 p.m. in Sydney today.

Banks including National Australia Bank Ltd., Royal Bank of Scotland Group Plc. and Societe Generale SA predict Australia’s currency will reach parity with the U.S. dollar by the first quarter of next year, according to Bloomberg data.

Reserve Bank of Australia Governor Glenn Stevens raised the overnight cash rate target for an unprecedented third straight month last week to 3.75 percent. By contrast, the U.S. Fed funds rate is close to zero, and the ECB’s benchmark is at a record low of 1 percent.

Economic Help

“The movement in the exchange rate has once again proven to be an important means of assisting the Australian economy adjust to changes in the global economic environment,” Debelle told a conference organized by Westpac Banking Corp. today. “As on earlier occasions, the economy has proven to be resilient to these swings.”

Employment soared for a third straight month in November as companies added six times as many jobs as economists estimated, boosting the nation’s currency, a government report showed today.

The number of people employed gained 31,200 from October, the statistics bureau said. The median estimate of 22 economists surveyed by Bloomberg was for an increase of 5,000. The jobless rate fell to 5.7 percent from 5.8 percent.

Australia’s economy is one of the few including China and India to skirt this year’s global recession, boosted by Prime Minister Kevin Rudd’s A$42 billion ($38 billion) stimulus package. Gross domestic product expanded 1 percent in the first half of this year.

Looking Good

Stevens, who predicts economic growth will accelerate above 3 percent next year, said this week he didn’t expect the economy at the start of 2009 to be “looking as good as it does” now.

“I thought things would turn out rather worse than they have,” Stevens said on Dec. 8. “But who’s complaining? Not me.”

Much of the demand for jobs in Australia is being driven by resources companies including Chevron Corp., which last week signed a deal with Japan’s Tokyo Electric Power Co. to supply liquefied natural gas from its Wheatstone field in Western Australia. The project is forecast to generate 6,500 jobs during construction.

“The Australian dollar is often described as a ‘commodity currency’, meaning there has been a historically strong relationship between the Australian dollar and the terms of trade and commodity prices,” Debelle said today.

“As a result, the Australian dollar has been particularly sensitive to the large and rapid changes in expectations for world growth that have occurred over the past 18 months.”

Debelle also said current account figures show “there have been large net inflows of foreign capital into Australia since the start of the year as the home bias of global investors has eased.”